Stemberg's take on Romney and Staples, the 1996 version

Mitt Romney’s top surrogate defending his record at Bain Capital may be Tom Stemberg, the former Staples CEO and co-founder who’s scheduled to speak to the convention tonight.

In prepared remarks released by the Republican National Convention, Stemberg describes Romney as an extraordinary financial backer: “Mitt was not a typical investor. He was a true partner. Where some saw an unproven new business, he saw a store that could save people money. He recognized that efficiency creates consumer value. He never looked at Staples as merely a financial investment. He saw the engine of prosperity it would become.”

Stemberg’s account of Romney’s involvement in the Staples launch was a little more complicated, and in a 1996 book presented Bain as a cautious investor in his enterprise, that needed some convincing before putting capital on the line.

In Stemberg’s account of the company’s founding in “Staples for Success,” he says Romney and Bain got in on the deal once another major investor dove in first:

I then pursued Fred Adler, a New York lawyer who dabbled in venture capital, after meeting one of his junior partners, Sandy Samuels, through a headhunter friend. Samuels liked my presentation immediately. Hambro, a New York venture firm approach by Reilly, also sensed a good opportunity.

By November of 1985, Bessemer, Bain, Adler, and Hambro had finished sniffing the deal and wanted in. But in the odd world of venture capital, nobody wanted to make the first move. Explains Reilly: “Venture capitalists have a well-developed herd instinct. If one buffalo starts to run, all the buffalos will run. But if no buffalo starts, no one will run.” The buffalo that moved: Adler who was not a card-carrying member of the venture capital industry and thus had no compunction about breaking ranks with the others by saying “Yes.” Bain, Bessemer, and Hambro fell into line quickly. They didn’t want to lose the deal, and they hated to see Adler get it.

Adding some grading to the lore of Bain’s involvement in Staples (the story goes that they calculated how much companies could save on office supplies, and got excited) Stemberg wrote that Bain originally missed the mark on that math:

But even Hardymon wasn’t completely sold. He decided to invite Mitt Romney, a partner at Bain Capital, into the picture. Boston-based Bain, a unit of Bain Consulting, was a newcomer to venture capital. After running a consulting firm for eleven years, Bill Bain, its founder, became intrigued by an idea. To advise their clients, Bain’s consultants regularly studied industries so closely that they could spot tremendous entrepreneurial opportunities, yet never got to take advantage of them. Why couldn’t Bain’s vast analytical talent be deployed in venture capital, where there would be giant payoffs? In 1984, Romney launched Bain Capital. Hardymon thought Bain’s painstaking approach would be useful in testing my research. “Due diligence was a real thing with them. You could ask a rhetorical question and some Bain consultant would go out, do research for two days, and come back with answers,” he explains.

Indeed Bain investigated every nook and cranny of the Staples premise. “At first I thought it was a crazy idea,” recalls Romney. “Business services were moving toward becoming more convenient, but this idea involved asking businesses to do their own shopping.” He decided to study the idea more closely. A team of four consultants called 40 companies to ask how much they spent on office supplies. Glumly, they came back with the answer: only $200 per employee. I said, “Look guys, I agree that its not a top-of-the-mind problem. Do me a favor and audit the invoices.” And because they were rookies, the Bain consultants actually did it. The new answer: $800 per person. The money that customers could save was, in the end, what persuaded Romney. “There were some big risks, but we knew that if people behaved as rational economic beings, they’d come shop at Staples,” he says.

The basic gist of the account Stemberg and Romney have given is true, but campaigns do have a way of ironing the nuance out of such things. The role Staples plays in Romney’s political biography can’t be overstated: that company’s growth accounts for the great majority of the jobs Romney says he helped create.